Fortune's June issue came out with a good article about the factors that took the retail icon Sears out of the retailing picture.
If you invest in retail companies, it's worth a read. Every company, like a person, has a finite lifespan. Hindsight is 20/20, but by becoming aware of the follies of the past, it helps to keep investors aware of the risk factors to look out for. No one or company is immune from them. Keeping those risk factors firmly in mind can help you to understand the potential “pot holes” in your current retail investments.
Several points brought up in this article that lead to the demise of Sears are worth thinking about.
- Sears became arrogant. They knew their business better than anyone else. What could they learn from anyone else? They considered themselves from a higher caste. They didn't attend industry conferences and never hired outside consultants for fresh perspectives.
- They de-worsified and bought businesses in the financial industry using the retail business as a cash cow. They forgot that their allegiance should have been to their retail customer. Those financial businesses weren't focused on their core customers.
- They didn't invest in their retail business anywhere near the level that their up and coming competitors were - Walmart, Target, Home Depot, Best Buy, etc. In the current environment, many businesses are buying back huge amounts of stock versus investing in their businesses with capital expenditures. Are the seeds being sown right now for some of the next generation of businesses to fail? Last time I was in Sears, they had the same cash registers to which they "upgraded" in the mid 1970's!
Like the person who smokes, drinks too much and doesn't exercise, you can see those companies who are currently sowing the seeds for their eventual demise. But, you have to know what the signs are. Read this article and you'll be better educated.
Reading is fundamental. Buffett, who is the most renowned investor of our time, spends most of his time reading - not buying and selling stocks and companies. What are you going to do?
